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Is Debt Like Cholesterol?

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As I was prepping for a talk last week on debt in the US, I realized that we talk about debt today much like we talked about cholesterol when I was growing up. There’s good and bad cholesterol, just like good and bad debt. Cholesterol isn’t inherently bad for your health—in fact, your body needs good cholesterol for organ growth. It’s the bad cholesterol that clogs your arteries and makes you more prone to stroke and heart disease.

So we spend our time trying to avoid bad cholesterol by eating “healthy”. Our choices are very much dictated by our environments and, for a few, by our inherited genetics. Just like our health outcomes are largely dictated by social determinants like income and the built environment, our financial security is the same, despite the popular belief that these outcomes are shaped mainly by our choices.

But the parallels between cholesterol and debt are complicated by the fact that people of color increasingly experience debt as mostly bad, even when it’s supposed to be good. For too many, taking on good debt for necessities such as homeownership or education isn’t growing their wealth status. In fact, student loan debt is turning into bad cholesterol, blocking the opportunity for graduates to attain homeownership or other wealth-building opportunities. Using other people’s money and leveraging debt is normalized for the wealthy, but the debts piling up for many low-wealth households are not by choice, but by circumstance. And even those debts that are by choice are not working to advance their financial position.

Just like medical researchers working day in and day out to find treatments for bad cholesterol, I was inspired by a small cadre of non-profit leaders gathered last week in Memphis, TN, to develop their own “statins” to the debts plaguing their Southern communities: court fines and municipal fees, predatory loans and medical debts. These debts—in addition to Parking fines, medical bills, tax liens, evictions and other debt judgments—negatively impact the financial outlook of hard-working people, and can result in the garnishment of wages and bank accounts. The non-profit leaders were from seven states (Alabama, Louisiana, Tennessee, North Carolina, South Carolina, Arkansas and Texas), and convened as part of the Annie E. Casey Southern Debt Partnership to focus on reducing debt for families of color.

Hearing stories of their clients put faces to what is also illustrated by data: people of color are carrying “bad” debt and it’s clogging their financial arteries. Different states had different experiences. Median total debts in these states range from $23,429 in Alabama to $28,732 in North Carolina. While we cannot attribute this disparity solely to debt, bad debts lessen the likelihood that households are able to save or replace bad debt with good, productive debt.

Households with zero net worth, meaning they owe more than they own, make up 15% of Louisiana households and 19% of households in Alabama. In all the states, Black households experience around twice the rate of zero net worth than White households. In Texas and North Carolina (where we have available data), 19% and 20% of Hispanic households experience zero net worth, respectively.

Except for Arkansas, the other states represented rank in the bottom 10 states nationwide for consumers with debt in collections. Louisiana ranks the worst in the nation with 37% of consumers with accounts in collections. South Carolina ranks 50th with 21% of consumers more than 90 days overdue on their debts. These debt levels and delinquency rates are compromising the financial security for people of color. (For more data about debt and credit in your state, check out the Prosperity Now Scorecard.)

Prosperity Now looks forward to partnering with dedicated organizations in these states to tackle the issue of crippling debt—so pervasive, yet invisible. Stay tuned to updates on our work to shine light on this problem with data, base-building and advocacy strategies that address the policies driving these outcomes. Also, check out our report, Forced to Walk a Dangerous Line: The Causes and Consequences of Debt in Black Communities for national data and context from another Prosperity Now project exploring debt in African American communities and potential solutions. Stay tuned for the next installment in our study of debt that will feature consumer insights from in-depth interviews in Baltimore, New York City and Fort Lauderdale.